India's trade deficit narrowed to a five-month low of $10.9 billion in August on the back of improving exports, which showed a double-digit growth for the second consecutive month, and a marginal decline in imports led by a sharp fall in gold imports.
Policymakers worried over a high current account deficit sought to derive optimism from the official data released on Tuesday, but analysts warned of the unabated rise in crude oil imports.
Exports grew 12.97% to $26.13 billion in August- the highest growth in the last two years while imports declined 0.68 % to $ 37.05 billion.
Exports stood at $23.13 billion in the corresponding month last year, while imports were $37.3 billion leaving the trade deficit at $14.17 billion.
Commerce and industry minister Anand Sharma said the the trade data, especially the crash in gold imports, signified an effective turnaround, but added that rising crude import bill was a matter of concern.
The government has been talking about measures to curb the consumption of petroleum products, besides sticking on to the path of deregulation of prices, to moderate the fiscal impact of the oil import bill.
Gold imports fell 78% to $0.65 billion in August from $2.97 billion in July.
In volume terms, imports of the yellow metal crashed 95% in August over the previous month.
Gold imports are coming down and we expect that trend to continue though it will not have an impact on the jewellery sector. We are in a firm positive terrain with exports growing at double digits. Our imports are also down and we are closing the big gap in our trade account. We have had a bumper harvest as monsoons have been good. There is an effective turnaround, Sharma said.
India's annual petroleum import bill is more than $160 billion a year.
According to Ajay Sahai, director-general and CEO, Federation of Indian Export Organisations (FIEO), India's export competitiveness has increased by 7-8% because of the depreciating rupee especially in traditional sectors which have benefitted the export performance in the last two months.
Higher customs duties on gold, platinum and silver have helped curb their imports for investment purpose. Recently, India also imposed import taxes aggregating 36% on high-end flat screen (LCD/LED) plasma TV sets.
It is also planning impose such barriers on imports of several other non-essential items with a view to reduce the import bill and the current account deficit, although trade experts have doubted the efficacy of these measures.
As FE reported earlier, there are also plans to raise duties on more luxury items like imported watches, perfumes, clothing and on imported electronic goods like laptops, refrigerators, music systems.
Crude imports are an area of concern due to a sharp spurt in the prices of brent crude that puts pressure on the import bill. Another area of concern is the increased imports of electronic goods (India imported more than $32 billion worth electronic goods last year, Sharma said.
He added that with the international prices of crude oil rising over the past ten days, the import bill may go up in the coming months. The minister also said Russia has lifted a ban on import of non-Basmati rice from India and New Delhi aims to make a significant market in Russia in oil seeds and rice. 45% of our exports have a substantial import component and those imports have become costlier which have offset the gains from rupee depreciation, he added.
Finance minister P Chidambaram said in Parliament recently: We are going through a period of stress...we have to take some hard decisions... Some measures to curb import of inessential items will also be announced. All these measures taken together will have beneficial impact.
Imports of gold and crude oil have fuelled India's trade deficit, which has contributed to the widening current account deficit (CAD). The CAD touched an all-time high of 4.8% of gross domestic product or $88.2 billion in 2012-13. The government aims to bring down the CAD to 3.7% of GDP, or $ 70 billion, in the current fiscal. Economic stability in major EU economies, including the UK and the economic growth in the US will also lead to higher demand in the coming months, the minister said.
Exports during April-August increased 3.89 % to $124.46 billion over $119.771 billion in April-August 2012. Imports during the period grew 1.72 % to $197.79 billion compared with $194.44 billion in the same period of the previous fiscal. Trade deficit for April-August 2013-14 declined to $73.36 billion compared with $74.67 billion in April-August 2012-13.
India should export iron ore
Commerce minister Anand Sharma urged for easing the restrictions on exports of iron ore, the exports of which have declined 60% in the last two years.
We have got adversely impacted on the coal front and the mining sector is an area of concern as it has declined. India should export iron ore and we must take up these problems with the judiciary, he said.